Does the lift of the ban on crude oil exports change the short-term outlook for U.S. producers who have struggled amid low oil prices? During today's OnPoint, Kevin Book, managing director at ClearView Energy Partners, discusses the short- and long-term impacts of the policy shift on oil market dynamics and the United States' ability to remain globally competitive. He also previews the energy policy agenda for 2016 following last week's omnibus compromise.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Kevin Book, managing director at ClearView Energy Partners. Kevin, thanks for coming back on the show. Nice to see you.
Kevin Book: Monica, terrific to see you.
Monica Trauzzi: Kevin, a policy move that many in the energy world never expected in the near term. Last week the ban on crude oil exports was lifted as part of the omnibus deal. Just how big of a deal is this from an energy policy standpoint?
Kevin Book: Well, from a policy standpoint, it's a significant change. We're adjusting a scarcity-based energy policy for an age of adequacy, recognizing that the world has changed in four decades. For Congress, that's a big step. In terms of actual economic difference, look, today the barrels can go directly from storage to ship and then what? The world out there may not want them as much as the world wanted them a year or two years ago. So long term, this is a big deal. Short term, this isn't going to stop job losses in North Dakota.
Monica Trauzzi: As we look to 2016 and the tone Speaker Ryan has set with the omnibus, will we see more on energy? Has the policy agenda changed?
Kevin Book: Well, there's two schools of thought. We tend to think that you actually now have taken most of the contentious issues off the table -- ITCs, PTCs, crude oil exports. That leaves room for consensus legislation, including some of the parts of the Energy Policy and Modernization Act that everyone could agree on. The other school of thought is, well, it's an election year and it's time to do battle. I think we're probably more likely to see the former than the latter.
Monica Trauzzi: And then there's this question of what this means for the oil industry and what it means for oil and gas policy heading into 2016. Is the industry going to have to pay lawmakers back for this move?
Kevin Book: I think the payback probably isn't next year so much as in the tax reform when and if it happens. If you ask lawmakers what they think about what they've just done, some of them will say, well we think we did the right thing, but we didn't do it without -- with significant pain. For Republicans, they had to trade an awful lot for this, and so those Republicans, when it's time to look again at tax policy, may have some things that they are asking of the oil and gas industry.
Monica Trauzzi: So the impact on oil markets, negligible?
Kevin Book: I wouldn't say negligible. If you look at the Brent WTI spread a month ago, it was about $2 or so apart. It's collapsed down to essentially nothing right now, 20, 30 cents a barrel. That could change. It's got a lot to do with more than just our export ban, after all. Iranian crude coming back to market next year, differential refinery capacity utilization, but you would expect WTI to appreciate relative to brent in recent months and possibly to get ahead of it.
Monica Trauzzi: So does this reinvigorate the U.S. industry in any way? I know that you mentioned the North Dakota producers already. What does this mean for U.S. producers?
Kevin Book: This is really a long-term signal. It says to U.S. producers, if you drill the wells, if you make the investment, there will be a market for you again when overall global prices recover.
Monica Trauzzi: Does this keep the U.S. globally competitive?
Kevin Book: I think the U.S. is pretty competitive but it's not necessarily on crude production where the competition has been strongest. It's in refined products. This does very little to undermine our refined products advantage, even if crude prices for the U.S. are at parity with global crude prices. Energy costs, especially for natural gas, that runs our refineries and goes into the fuel mix quite low relative to global averages. But in terms of giving U.S. producers an opportunity to sell U.S. light sweet into the global market, sure, it definitely gives them that option. Right now, though, if they were trying to wedge their way into a crowded market, they'd have to take deep discounts. Don't think anyone's in a hurry to do that.
Monica Trauzzi: So in terms of logistics of how this all rolls out, how quickly could we expect crude to begin to be exported?
Kevin Book: Well, effectively the legislation says that no official can stand in the way, and what that means is that if you look at LNG exports where you have a three-, four-year, $10 billion, $15 billion project standing between natural gas and the world, crude can go out right now the infrastructure exists to carry it to port and the ships exist to carry it to market. And so I wouldn't be at all surprised if you started to see cargoes moving right now.
Monica Trauzzi: Is there a clear way to quantify the environmental impacts that this could have and the impact on global emissions?
Kevin Book: That's a very subjective question. The objective part of the question has to do with the greenhouse gas signature of the crude oil that we produce here relative to the crudes that might be replaced overseas. If U.S. crude just adds to global supply and brings price down, increases consumption, then any U.S. barrel, in theory, adds to the global greenhouse gas stock. But if we displace overseas higher-carbon-intensity crudes, we could actually be part of reducing greenhouse gas emissions through exports.
Monica Trauzzi: You've often talked about this administration's give a little, take a little strategy on energy. Are they still delivering on that?
Kevin Book: I think, at this point, all of the giving is probably pretty close to done, and I say that in this very giving season. If you look ahead at the -- what next year brings, the ITCs and the PTCs were one of the big outstanding items that the administration wanted. So was the global climate fund. Now with those off the table, there's really nothing standing between the White House and a greener agenda.
Monica Trauzzi: All right. We'll end it right there. A lot to watch for next year. Thank you for coming on the show.
Kevin Book: Thanks as always for having me.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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